Missouri Attorney General Chris Koster

CHICAGO — The head of a firm that triggered a default on $39 million of municipal bonds sold for a Missouri sucralose plant will go to prison as part of a plea deal.

Bruce Cole, the former chief executive officer of Mamtek US Inc., pleaded guilty to two criminal counts of securities fraud and one criminal count of theft under a plea deal reached with prosecutors, according to a statement Tuesday from Missouri Attorney General Chris Koster.

Cole faces a sentence of between five and seven years. A sentencing hearing is scheduled Nov. 3 in St. Charles Circuit Court.

The Moberly Industrial Development Authority sold bonds backed by a city appropriation pledge to help finance the artificial sweetener plant in 2010. Mamtek US, which said it was the subsidiary of a Chinese firm that makes sucralose, defaulted in August 2011 on a payment to Moberly needed for debt service. The city then informed trustee UMB Bank that it wouldn't honor its pledge to repay the debt. Mamtek then abandoned the half-built factory.

"Bruce Cole knowingly deceived the city of Moberly and investors about the Mamtek project and kept bond money for his own personal use," Koster said. "He will be held accountable for his actions by a sentence of at least five years in a Missouri prison."

Koster filed four counts of securities fraud and one count of theft against Cole in 2012 after an investigation, along with Randolph County Prosecuting Attorney Mike Fusselman, into the failed project in Moberly.

The Securities and Exchange Commission also aided the probe and has filed its own civil charges against Cole. The case was later moved to St. Charles County Court.

"A better outcome would have been getting the money back for the investors ... We were unable to do that because the money is gone ... but this is an appropriate resolution to the case," Koster said.

The local and state probe found that Cole used more than $700,000 of the Mamtek financing for his personal use, including $281,046 to halt the foreclosure of his Beverly Hills, Calif. home.

Cole was awarded $17 million in state tax credits and other incentives for the project, based on the promise that the project would create hundreds of new jobs, but Koster said Cole knew those promises were false. As part of the plea agreement, the federal government will drop its criminal pursuit of Cole.

Cole approached state agencies in March 2010 about building the plant and in May he accepted Moberly's proposal which included bonding assistance. He allegedly created false documents to reassure the city of the sham company's existence and submitted improper invoices to the city drawing bond funds for work never performed.

Cole's guilty plea is the latest development in the ongoing saga over the failed plant.

When they were issued, the bonds carried an A rating from Standard & Poor's based on the city's appropriation pledge. Moberly lost its investment-grade rating after it reneged on its pledge. The sucralose plant bonds are now rated D.

The trustee and other creditors forced Mamtek into involuntary bankruptcy and the plant's assets were sold off. Bankruptcy trustee Bruce Strauss has filed litigation against Cole and other key figures in the company.

U.S. District Court Judge Nanette Laughrey last month upheld a bankruptcy court-imposed judgment against Cole, finding he fraudulently obtained bond funds and order Cole to return $904,000 transferred to his personal accounts and another $360,000 Cole used to pay off personal creditors.

Laughrey said evidence showed that Cole had submitted a $4 million invoice for a company that had not preformed any services for Mamtek and was in fact not even yet established. The money instead was doled out to other creditors, Mamtek officers, and Cole's wife's personal account.

"On this record, a reasonable fact finder could only conclude that Mamtek intended to defraud when it submitted the Ramwell invoice to Moberly and then transferred $904,167 to the defendants," the Aug. 15 ruling said.

Cole also the Securities and Exchange Commission's civil fraud accusing him of scheming to defraud potential investors

Several investor-led lawsuits are also pending against the financial firms involved in the bond issue. The former Morgan Keegan underwrote the 2010 bonds.

The Missouri Secretary of State last year filed a civil enforcement action against Morgan Keegan accusing the firm of securities fraud. It accuses the firm of defrauding clients by misrepresenting material facts about the offering.

A group of bondholders led by Shelter Insurance Cos. has added as a defendant Raymond James Financial Inc., the firm that acquired Morgan Keegan in 2012. Shelter's lawsuit and others filed by bondholders accuse Morgan Keegan of securities violations for allegedly misleading potential investors about the viability of the plant and city pledge.

The bondholders decided to add the corporate parent as a named defendant over fears that Morgan Keegan no longer has assets, only liabilities, and wouldn't be able to make good on a judgment should investors prevail. Raymond James has denied any wrongdoing and is fighting the move to add its name, saying Morgan Keegan's former owner, Regions Bank, would be responsible for any legal liabilities. The lawsuit, being heard in Cole County Circuit Court, is set for a trial next year.

The Missouri Secretary of State filed a civil enforcement action in 2013 against Morgan Keegan accusing the firm of securities fraud. It accused the firm of defrauding clients by misrepresenting material facts about the offering. A separate bondholder lawsuit is also pending in federal court with a decision expected soon on class action status.

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